Economy Watch: Good News for the Economy: Consumers are Spending Again

Consumer spending is increasing, to the delight of retailers everywhere.

By Dees Stribling, Contributing Editor

In another indication that the economy isn’t going to be as sluggish in the second quarter as the first—and one that’s particularly good news for retailers and their landlords—Americans decided to go out and spend more of their money in May. The Bureau of Economic Analysis reported on Thursday that personal consumption expenditures (PCE, as government economists call it) increased by $105.9 billion, or 0.9 percent, in May. That represented a surge from April, when the increase was practically no increase at all at 0.1 percent. It’s also the largest uptick in that particular metric since August 2009.

There are arguably a number of forces at work in encouraging consumers to spend. Despite the glum first quarter, the economy feels like it’s expanding, and it is—especially where it counts for consumers, in job growth. There are even some indications that wages are going up. Slowly, but still going up. The BEA also reported on Thursday that personal income increased $79 billion, or 0.5 percent, and disposable personal income—DPI, which the after-tax kind of income that everyone likes—increased $65.5 billion, or 0.5 percent, in May. That was the same increase as in April, marking the strongest increase in income for a two-month period in more than a year. Some of the May increase was governmental disbursements and rental property income and other kinds of income, but a large share was wages and salaries, which increased $37.1 billion in May, compared with an increase of $21.6 billion in April.

The bulk of the spending increase was for goods, including everyday items such as groceries, but also durable goods. Purchases of durable goods—products designed to last more than three years—increased 2.3 percent in May, compared with a decrease of 0.1 percent the month before. Big-ticket durable goods did particularly well, namely cars. Purchases of motor vehicles and parts accounted for about half of the increase spending in May. Spending on services rose more modestly for the month, up 0.2 percent, which was the same as in April.

The price of gas was probably a factor as well. Though not as cheap as it was during the winter—gas seldom is during the summer—prices at the pump are down from an average of $3.681 a gallon a year ago (according to AAA, price for regular) to a current average of $2.781 a gallon. The impact of lower gas prices on consumer spending, which as roughly two-thirds of the economy, certainly outweighs the impact on investment in oil and gas production, which is about 1 percent of the economy. It also makes consumers feel like they have a little more money (which they do), and important factor in the psychology of spending.

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